(Illustration by Adam McCauley)
When social activists target a company, they often launch a boycott, calling on the public to stop buying the firm’s goods or visiting its stores. This combined PR and financial pressure seeks to force executives into concessions on the issues that activists care about and to stigmatize the firm politically.
Sociologists are investigating the effects on companies of “non-market risk,” including various sources of regulatory or political uncertainty. Mary-Hunter McDonnell, a sociology professor at the University of Pennsylvania’s Wharton School, and Timothy Werner, a political science professor at the University of Texas at Austin’s McCombs School of Business, wanted to look at the nexus of non-market risk and politics: How do social movements affect companies’ relations with political representatives?
Political activity is a necessity for companies, McDonnell says: “Political action committee contributions make it more likely that politicians will answer the phone if you call,” which affords the access that executives need to promote the company’s interests and mitigate risk.
The researchers assembled a database of public companies that were the targets of boycotts between 1990 and 2007 by searching the largest six newspapers in the United States and cross-referencing lists of the firms with those that had financial data available at the time of the boycott. This led to a sample of 203 firms that had experienced well-publicized boycott campaigns during this period whose effects could be measured. Then they compared each with a public company of the same size and industry that had not experienced a boycott.
The investigators assessed key indicators for measuring politicians’ associations with a company, such as whether, and how much, that company’s political contributions were returned, how many invitations the company received to testify before Congress in a friendly hearing, and how many government contracts it procured.
The data show that boycotts work by nudging politicians to distance themselves from targeted companies. Compared with the control group, firms undergoing a boycott saw politicians return 1.6 percent more contributions, an 80 percent increase over refunded contributions during the pre-boycott period. These firms made 44 percent fewer appearances before Congress and received 36 percent fewer government contracts.
This boycott effect, however, can be short-lived. Within nine months of a boycott, politicians typically return to accepting the company’s political contributions, the data show. The lesson for executives whose company is facing a boycott is clear: Just wait for the protest to fade from the public consciousness, and your checks will be cashed again. “The public has a fairly low attention span,” McDonnell says.
The researchers began examining different ways that social movements affect companies’ interests after the publication of a 2007 paper in Administrative Science Quarterly, by Sarah Soule of Stanford’s Graduate School of Business and Brayden King of Northwestern University’s Kellogg School of Management.
“This new paper adds a fascinating twist to this area of inquiry by showing that another negative effect of protest on firms is that politicians will shun them (and return their contributions),” says Soule, a professor of organizational behavior.
Companies have always been targets for activism, and once activists go after them, they are vulnerable to the influence of public opinion, Soule says. Firms can hedge this reputational risk by using data about their customers to predict their political and social views, and thereby avoid backlashes. “Smart companies invest in knowing their customers, and understand how to appeal to their needs, and this extends to knowing what their customers’ attitudes and beliefs are,” Soule says.
The greatest problem that companies face, McDonnell says, is a disconnect between their brands and their perceived positions on social issues. Social stigma especially gains momentum when a company’s customers feel that its behavior or outlook contradicts its reputation. “What the public hates is hypocrisy,” McDonnell says.
Mary-Hunter McDonnell and Timothy Werner, “Blacklisted Businesses: Social Activists’ Challenges and the Disruption of Corporate Political Activity,” Administrative Science Quarterly, 61, 2016.
Read more stories by Chana R. Schoenberger.